DOJ Lawsuit May Limit Ability of Activist Hedge Funds to Rely on “Investment Only” Exemption From Hart-Scott-Rodino Filing Requirements

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) requires an acquirer to disclose to the FTC and DOJ purchases of assets or voting securities of a target company when the acquisition will result in the acquirer owning assets or securities in excess of specified thresholds. Activist funds have recently come under regulatory scrutiny for relying on the so-called “investment only” exemption from these filing requirements. See “In Third Point Settlement, FTC Takes Narrow View of ‘Investment Only’ Exemption to Hart-Scott-Rodino Premerger Notification Requirements” (Sep. 3, 2015). The DOJ has filed a civil complaint against activist manager ValueAct Capital and two of its funds for failing to file HSR Act notifications when those funds exceeded the applicable ownership thresholds in certain companies. The suit is important to activist and other managers because it explores the questions of when a manager or fund is entitled to rely on the investment only exemption from HSR Act filing requirements and what constitutes an intent to influence a company’s business. This article summarizes the relevant provisions of the HSR Act and related regulations, the circumstances giving rise to the suit and the DOJ’s claims. For a general look at activist investing, see “Seward & Kissel Private Funds Forum Highlights Key Trends in Fund Structures (Part Two of Two)” (Jul. 30, 2015); “Structures and Characteristics of Activist Alternative Investment Funds” (Mar. 12, 2015); and “Practitioners Discuss U.S. and Canadian Shareholder Activism and Activist Tools” (Dec. 4, 2014).

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